Where is the European Economy Heading to? Op-ed

Days ago, Irish Finance Minister Paschal Donohoe (right-center) was elected president of the Eurogroup, amid the largest economic crisis in the European continent. He won the position in the second vote against Nadia Calviño, former Finance Minister at the leftist government, who had the support of France and Germany.

The president of the Eurogroup, who is elected for a two-and-a-half-year term, has a powerful role alongside the heads of the three largest institutions of the bloc, Ursula von der Leyen (European Commission), Charles Michel (European Council) and David Sassoli (parliament) , and Foreign Minister Josep Borrell.

The president of the Eurogroup plays an unenviable role in the European Union, as he chairs the ministerial monthly meetings which seek to coordinate the national economic policies. We remember that this task was not easy, and we witnessed it during at some EU countries in recent years, especially in Greece.

Donohoe began his term at a very crucial time, as the European economy suffers from the repercussions of the Covid-19 pandemic, and Europeans are worried about their future, jobs and incomes. Further more, the European Commission announced a few days ago that it expects the eurozone's GDP to decline worse than expected in early May.

In particular, it will decline by 8.7% this year before improving in 2021 by +6 .1%. The economic repercussions of the lockdown are worse than what the Commission initially expected, as Europeans still face many risks, including a second wave of infections by the novel coronavirus.

There are three countries particularly affected by the recession: Italy, Spain and France, with GDP falling by more than 10 percent in 2020. Italy will see its GDP drop by 11.2 percent in 2020 before improving in 2021 (+6.1) %). On another hand, it is expected to decline in Spain by 10.9% in 2020 and then improve in the next year to reach + 7.1%.

In France, it could decline by 10.6% this year and then recover to 7.6% the following year. On the other hand, Germany was among the countries that limited the losses, along with Luxembourg, Malta and Finland, with GDP falling by 6.3% this year and a 5.3% recovery expected in 2021.

In Britain, which left the European Union, the Kingdom's GDP decreased by more than 25% in March and April, and the International Monetary Fund expects a decline by 10.2% for the economy this year.

In a recently published study, the Center for Economics and Business Research (CEBR) predicts a further 11% decline in GDP and considers that the British economy will not return to its pre-pandemic levels before 2024, even if a new wave of infections does not occur or force a lockdown.

The success of the Eurogroup president’s mission requires achieving compromises between the major financial powers in the North that apply strict financial policy, on the one hand, and the countries of the South known to be easier on that, on the other hand.

And the nationality of the group’s president seems to play a major role in this process, given the current confrontation between the two sides in the ongoing negotiations.

On the one hand, there are the four countries that are described as "austere", that is, the Netherlands and Austria, along with Sweden and Denmark, (the latter two are outside the euro zone), and they are very conservative on the financial settlement plan, and we have touched on this topic in one of our previous articles. Those countries are compared to the countries of the South, led by Italy, Spain, the top gainers from a plan on a broad European lending process.

In conclusion, the 45-year-old Irish is a smart administrator who has put his country back on a sound budget path after a severe recession. This young man, whose country hosts the European headquarters of major American digital companies, expressed his opposition to the European tax bill on giant American technology groups "Gava" (Google, Amazon, Facebook, Apple).

This indicates difficult times ahead between his own convictions and those of some countries, especially the French ones, which confirm that the tax on digital giant companies is a legitimate issue and will enter the treasury of the French state, for example, about 400 million euros, then 650 million euros.